Oil war fears intensify: Iraq's budget and global markets at risk

Shafaq News/ Experts in the oil field revealed the fate of the Iraqi economy in case the Israeli war in Gaza and Lebanon expands to the rest of the region to include targeting oil facilities, as Iraqi income depends 90% on oil, making the country “among the most affected” in the event of escalation in the region.

The region where Iraq is located supplies more than 20% of the oil market's needs, and any emergency could ignite the oil market to levels that the global economy cannot withstand, resulting in a significant rise in the price of goods and commodities required by other markets, according to the economic expert, Diaa Mohsen.

The Inconvenient Outweigh The Advantages

As for Iraq, Mohsen told Shafaq News, “There are both positive and negative aspects. As for the positive aspect, any increase in oil prices means an increase in oil revenues and this may result in a large surplus in the state's general budget.”

“The negative aspect, however, may overshadow the positive one, because Iraq imports all its needs in foreign currency coming from the sale of Iraqi oil. This means that what comes in from one side goes out from the other, and this is certainly not in Iraq's interest,” Mohsen said.

“The danger may arise if the oil loading stations are subjected to air strikes by the Zionist enemy, under the pretext of the presence of Iraqi fighters fighting with Hezbollah and Hamas fighters. That would greatly affect the Iraqi economy,” he explained.

In a post on Telegram, Abu Ali al-Askari, the Kata’ib Hezbollah security official, said, “If the energy war begins, the world will lose 12 million barrels of oil per day, and as Kata'ib Hezbollah previously said, “Either everyone enjoys the resources or everyone is deprived.”

These statements come amid great tension in the region, following the recent strikes in Lebanon, the assassination of Hezbollah Secretary-General Hassan Nasrallah, and the recent Iranian missile attack on Israel, in a major escalation that threatens to lead to a war affecting Iraq and several countries in the Middle East.

Security and geopolitical tensions are escalating to the point of threatening the oil fields in the region, which is considered one of the richest oil-producing areas in the world and supplies about 30% of the world's oil.

Iraq is one of the largest exporters of oil, the second largest oil exporter in OPEC, and has the fifth largest reserves in the world, according to oil and energy expert Kovind Sherwani.

Serious Repercussions For Iraq

“If instability occurs in the Gulf region, it will affect the oil supply from this region to Asian and European markets, creating a crisis that may raise oil prices above $100,” Sherwani told Shafaq News.

As for the effects, “all oil-exporting countries will be affected and Iraq will be one of the most affected for several reasons, the most significant being that the only outlet for the oil export is in the Gulf region, which has become highly vulnerable to the escalation of military operations between Iran and its allies on the one hand and the Zionist entity on the other, and some irregular factions that have also threatened oil sources,” Sherwani said.

“Oil institutions, including fields, wells, pipelines, refining and isolation facilities, and export ports, will all be affected if they are exposed to any military or missile attacks of any kind, thus creating great instability that affects all producing countries,” he explained.

“The other influencing factor for Iraq is the high dependence of the Iraqi economy on oil by more than 90%. Oil is the main resource for the Iraqi budget and economy, and any external impact on this resource will have serious repercussions on the budget, economy, and all programs of the Iraqi state,” he said.

“Iraq had to work to activate other outlets away from areas of tension for exporting oil, such as reviving the northern export outlet through the Ceyhan port, which has been suspended since March 2023. The losses caused to the Iraqi economy by the suspension exceeded $16 billion,” he emphasized.

“As well as expediting other export outlets, for example, the Basra-Aqaba pipeline, which could have been another source of export, and perhaps also thinking about reviving the export through Syrian ports that were operational until the 1970s,” he added.

The Impact Of The War On Iraqi Oil

For his part, researcher and writer in economics and energy, Dr. Bilal Al-Khalifa, explained the impact of the war in Gaza and Lebanon on Iraqi oil saying that “the factors affecting global demand and oil prices are many, the most important of which are wars and conflicts that occur in oil production areas or areas where oil consumption is noticeable, such as Europe, China and America.”

“The ongoing war between the Zionist entity and Gaza and Lebanon also had an impact on oil prices. Fears of expanding the circle of conflict in the West Asia region has increased the oil prices by about two dollars,” Al-Khalifa told Shafaq News.

“These fears arose after the Houthis entered the war by targeting ships, including oil tankers linked to the Zionist entity or countries supporting it, such as America and Britain, and this made those tankers use the Good Hope route instead of the Red Sea and the Suez Canal, which led to an increase in transportation fees,” he said.

“Fortunately for Iraq, most of its oil exports are to the east, including India with about one million barrels per day, China with about 800,000 barrels per day, as well as South Korea, and what is exported to America and the West, which passes through the Suez Canal, is about 400,000 barrels or less, and therefore it is not affected by this issue,” according to Al-Khalifa.

“As for the possibility of expanding the war, especially after the Iranian strike on the Zionist entity and the possibility of their response to that strike by bombing Iranian oil facilities and the participation of other countries in the conflict, such as America or others, according to this scenario, expectations indicate that oil prices will soar, reaching 150 dollars and at the very least, as the parties to the conflict may target Zionist oil tankers or their supporters or target export and production facilities,” he continued.

“The second scenario, which does not include hitting the oil fields, also worries consumers. That is due to the presence of tension in a large oil production area whose production rates reach 12 million barrels per day. Therefore, prices are expected to rise in this case as well, but within the limits of 10-20 dollars. As for the third scenario, which is no Zionist response, it will keep oil prices stable around the current price,” Al-Khalifa said.

“In any case, Iraq's public revenues will increase because 90% of its public revenues come from oil, and the large budget deficit of 64 trillion dinars may decrease,” Al-Khalifa concluded.

Bassem Gharibawi, a member of the Oil and Gas Committee in the Iraqi Parliament Council, ruled out any strikes targeting oil, explaining to Shafaq News that there are “interests that the United States and Europe seek to preserve, including the issue of energy and the need to keep energy supply flowing because they need it. Any disruption in the export of Iraqi oil will reflect on them, so it will be preserved.”